Cloud Stocks: Palo Alto Networks Has Missed The Window To Buy Zscaler

Besides product upgrades, Palo Alto announced its acquisition of San Francisco-based Expanse for $800 million. Expanse offers an internet collection and attribution platform that constantly monitors the global internet, maps exposed and untracked assets that compromise organizations’ attack surfaces, evaluates and prioritizes risk, and provides mitigation solutions.

Prior to the acquisition, Expanse had raised $136 million in 4 rounds of funding from investors including New Enterprise Associates, TPG, Peter Thiel, Taylor Glover, IVP, Founders Fund, and Arianna Huffington. The acquisition will help Palo Alto enhance its Cortex product suite by creating the ability to integrate external, internal, and threat data to give organizations access to a holistic view of the enterprise.

Palo Alto’s stock is trading at $302.89 with a market capitalization of $28.84 billion. It was trading at a 52-week high of $306.00 earlier this month. The recent market turmoil had sent the stock to a 52-week low of $125.47 in March.

Earlier this year, I had suggested that Palo Alto should look at a possible acquisition of Zscaler. Zscaler’s cloud platform delivers Security as a Service and eliminates the need for traditional on-premises security appliances. As organizations continue to lose the boundaries that were contained by a traditional firewall, an acquisition of a cloud-focused security player like Zscaler could have helped accelerate Palo Alto’s presence in the space.

Zscaler’s Financials

Revenues for the Zscaler’s first quarter grew 52% to $142.6 million, ahead of the market’s forecast of $132.42 million. Net loss widened to $55 million from a net loss of $17.1 million a year ago. On an adjusted basis, EPS was $0.14, compared with the Street’s forecast of an EPS of $0.06. Among key metrics, calculated billings for the quarter grew 64% to $144.7 million. Deferred revenues grew 51% to $371.9 million.

For the second quarter, Zscaler expects revenue of $146-$148 million, with an EPS of $0.07-$0.08. The market was looking for revenues of $140.4 million with an EPS of $0.07. Zscaler expects to end the current year with revenues of $608-$612 million and an EPS of $0.37-$0.38. The Street had forecast revenues of $588.70 million with an EPS of $0.29.

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Note: This segment is a part in the series: Cloud Stocks.

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